Broker Check
Changing Your Asset Allocation is not Market Timing - IF ...

Changing Your Asset Allocation is not Market Timing - IF ...

| August 27, 2020

Market Timing Definition

"Selling equities with the intention to repurchase them later at a lower price is the definition of market timing " Barry Ritholtz (see link below)

Might Market Timing Actually Work? Yes! But ...

Readers who remember my previous post from Stanford GSB (Graduate School of Business) (linked below) might remember their research that some managers have persistently outperformed. But .... there is always a "but" .... that research also showed it is difficult for individuals to benefit.

IF your life situation has changed:

Retired. Married. New Child. Death of spouse. Moved residence. Changed job.

If your financial situation changed:

Got a raise. Got a bonus. Inherited. Financial reversal. 

What do all of these things have in common? Nothing about markets!

Why Will Financial Fiduciaries Typically NOT Market Time?

Because a financial fiduciary by definition (my definition anyway) is obligated to work only in clients' best interests. And that same research shows it is historically a very small probability that the client(s) will benefit even if the manager can and does outperform.

see Stanford Business research linked below

Has your risk tolerance changed? Have you had a personal epiphany? (Life happens!)

"Only when the tide goes out do you discover who's been swimming naked." - Warren Buffett 

Many of us enjoy quoting "The Oracle of Omaha." But this one happens to fit. If you are in need of a swimsuit and you now realize it, so be it!

But I panicked and got out. What should I do now?

Dollar-cost averaging* (DCA) is an imperfect idea that might fit ...  

" ... dollar-cost-averaging will, in addition to reducing your risk, also reduce your returns, on average."

But, if you've read this far, and you've had a personal epiphany about your risk tolerance, DCA might fit your brain better than the other choices.

See link below

*Dollar cost averaging will not guarantee a profit or protect you from loss, but may reduce your average cost per share in a fluctuating market.

Related Links